The New Normal: AI Growth in an Inflationary World

As the war with Iran enters its fourth month, financial conditions have largely adjusted back to pre-war conditions, but the stagflationary impulse still threatens the global economy. Although Brent crude prices have eased approximately 20% off their peak, the Strait of Hormuz remains closed.¹ While most governments have taken measures to mitigate the impact of higher energy prices on households and businesses, we have already begun to see early indicators of demand destruction in emerging economies that are heavily reliant on imported energy from the Middle East.²

Meanwhile, the boon in capital expenditures for artificial intelligence (AI)-related infrastructure has buoyed growth in the US and in select economies in Asia, most notably Korea and Taiwan, where surging technology exports have offset the impacts of energy shocks.³ While the US is not reliant on energy imports, higher energy prices have exacerbated the risk of higher core prices from tariffs and the impact of immigration policy on wage inflation.⁴

Input and output prices have been increasing as supply chain pressures have intensified worldwide.⁵ Some economies have begun to tighten monetary policy, and it’s likely more central banks will begin to raise rates in the coming months.

The duration of the current ceasefire remains unclear, as does the question of who will control the flow of traffic through the Strait of Hormuz over the long term. We continue to believe that supply conditions will not immediately return to normal upon the Strait’s eventual reopening, as the need to replenish oil stocks and repair damaged infrastructure will support still-elevated energy prices. In the face of this “new normal,” we believe that assets with the potential to participate in this inflationary dynamic are well positioned to demonstrate resilience across multiple states of the world.